South Korea and the G20

59 SOUTH KOREA AND THE G20 ASia’S POORHOUSE EMERGES AS ECONOMIC MIRACLE NATION Colin Dürkop / Sebastian Ratzer Dr. Colin Dürkop serves as regional representative of the Konrad-Adenauer- On November 11 and 12, South Korea will be the first Asian Stiftung for Japan and the Republic of nation ever to host a G20 summit. The role of chairing Korea. the summit is of high symbolic significance and a great achievement in its own right, as it primarily demonstrates the continually growing international recognition of this East Asian country. It gives South Korea the opportunity to present itself to the international community in a new role. Following the Korean War (1950-53), South Korea was transformed from a recipient nation to a donor country within just a few decades – a singular feat. Its experience of Sebastian Ratzer is advancing from the poorhouse to one of the world’s fifteen a member of the strongest political economies positions South Korea to take German editorial team for KBS WORLD an intermediary and leading role in the G20 proceedings. Radio, the South No country has a better understanding of both poor and Korean foreign wealthy nations. This is also the first time the G20 will service. be chaired by a country that is not a member of the G8, which testifies to the great faith being shown today in this country with a population of nearly forty-nine million. The government in Seoul is intent on living up to this display of confidence and making the summit a success. 60 Ever since it was determined that the G20 would replace the G8 as the most important forum for discussing economic issues, expectations for tangible results have risen. Yet, as the host of a summit, South Korea can now assume a stronger voice and step out of the shadow of neighboring Japan and China. Whereas the strong countries previously reached decisions among themselves while South Korea watched from the wings, today the country can influence the agenda of G20 meetings – though as yet only in a limited way. Since Korea has already been comparatively successful in overcoming the “IMF Economic Crisis,” now South Korea – as host country for the G20 – will be able to share these experiences with the participating countries, according to Jae-Taek Tak from the KBS Broadcasting Policy Center. Furthermore, there is a desire to promote mutual understanding and cooperation between industrialized and emerging countries and to foster a sustainable, harmonious world economic order. As host country of this year’s G20 summit, Korea will assume an intermediary role between industrialized and emerging countries. In this role, the Korean government will place an emphasis on overcoming the economic crisis. South Korea has already drawn attention to itself with ambitious plans for climate protection and green growth, and is setting a good example. Its aim is to establish a stronger presence on the international stage for itself, thus gaining more influence worldwide. The activities on the G20 level carry particular weight in terms of these efforts. RAPID ADVANCES FOLLOWING THE WAR South Korea’s staging of a G20 summit in November will be the provisional highlight of an unparalleled economic success story. The summit will thus carry particularly symbolic meaning, much like the Summer Olympic Games of 1988. At the start of the 1960s, South Korea was one of the poorest countries in the world. The annual per capita income at the time was US$100. In comparison, the figure today is US$17,000 – after having surpassed the US$20,000 mark temporarily in 2007. At the beginning of this year, South Korea became a donor country within the OECD Development Committee (DAC) – marking the first time a former recipient nation has joined this circle. it’s the economic and development model of South Korea can now serve as an example to other countries. 61 After the three-year fratricidal war, it was not immedi- ately foreseeable that the southern part of the peninsula would transform into an industrialized nation so rapidly. The country lay in ruins after the war and had very few natural resources. However, strict export orientation and government economic planning facilitated a financial upturn that would go down in history as the “Miracle on the Han River.” SOUTH KOREA WANTS TO SHARE ITS EXPERIENCES But the Asian crisis of 1997/98 put a damper on the rapid growth. Following a drastic fall in the country’s currency, the won, South Korea had to request support from the Inter- national Monetary Fund (IMF). The desperate measures undertaken by South Korea’s central bank, Bank of Korea, for backing the won had already seriously drained the foreign currency reserves at that South Korea has already drawn atten- time. This was followed by painful reforms tion to itself with ambitious plans for climate protection and green growth, under the scrutiny of the IMF, with the goal and is setting a good example. Its aim of alleviating the structural problems that is to establish a stronger presence on had arisen during the course of the rapid the international stage for itself, thus gaining more influence worldwide. economic development. In retrospect, the crisis was primarily used as a chance to vanquish traditional structures. In August 2001 – three years earlier than anticipated – Seoul had settled its debt with the IMF. The process of reform was resumed, too, once the worst was over. South Koreans still vividly recall their powerlessness at the time – most notably the IMF’s encroachment upon the national sovereignty, which had become necessary over the course of the bailout plan. So the prospect of finding themselves in such a situation again was rather unsettling for the South Koreans when the financial crisis of 2008 broke out. The country’s experience with its rapid economic climb following the war and during the Asia crisis explains why South Korea wants to take an intermediary role between the interests of developing countries and industrialized nations. South Korea wants to share these valuable experiences with emergent countries that have been hit particularly hard by the current economic crisis and suffered set-backs as a result. However, even the powerful industri- 62 alized nations can profit from this first-hand knowledge, since South Korea can offer its own perspective on which measures assure success when building up an economy or when facing crisis situations. In light of its practical experience, South Korea is an ideal point of contact for both sides. The Northeast Asian country can serve as an unencumbered example for developing countries, while also negotiating on a level playing field with leading industrialized nations on the merit of its own economic strength. As a country that has made the transition from recipient country to donor nation, South Korea understands what is necessary for its support to be of benefit, emphasizes President Lee Myung-bak. SOUTH KOREA NARROWLY ESCAPES THE PRESENT CRISIS It is not just because of its economic development in recent decades that South Korea is putting itself forward for a leading role on the international stage. The government’s spirited and gutsy actions during the current financial and economic crisis are also a likely reason why the country has been granted more responsibility at the G20 level. Its aim was to control its own fate rather than just reacting to events. The government was confident, having already proven its aptitude to cope with a similarly difficult crisis. Just as ten years before, South Korea again wanted to emerge powerful from this difficult economic situation. That is why the country stressed quite early – especially toward its own people – that the crisis also presented chances that should be used. Against this backdrop, an emphasis was placed on green growth, for one, in order to combat the crisis while simultaneously increasing long-term development potential. At the time, Lee and his ministers repeatedly emphasized that the economy of South Korea was standing on firm ground and that, despite a continued high dependence upon exports and raw material imports, it would be less susceptible to external shocks than a decade before. Additional security was provided by a comfortable foreign currency cushion, which was then around US$250 billion. The country had steadily built up its currency reserves during its economic recovery following the Asia crisis, thus leaving itself considerable room for fiscal maneuverability. In January of this year, the South Korean currency reserves reached a record high. With a cache of US$273.69 billion (balance as of the end of January), the country has the sixth-largest currency reserves. 63 MEMORIES OF THE ASIAN CRISIS WERE AWAKENED Despite the confident assurances of the cabinet members, the outlook at the end of 2008 was grim, even in South Korea. It seemed certain that the year 2009 would inevitably bring a recession. Still, the government wanted to achieve the impossible – or at least limit the effects the crisis would have on the country as much as possible. It was important to avoid a recession using all possible means. The focus was first set on short-term, liquidity-saving mechanisms, in order to prevent a sudden economic collapse. Like other central banks, South Korea’s reserve bank made full use of monetary measures: between October 2008 and February 2009, in several stages, the base rate was reduced by three and a quarter percentage points to a record low of two percent, where it still stands (as of the beginning of March). Many analysts worried that foreign lenders would withdraw liquidity from the South Korean market in order to plug the holes in their own balance sheets.

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